If it is your first time buying a home or you are a newbie in the property investment industry, certain real estate key terms are likely to confuse and boggle your mind. To help you become familiar with the real estate jargon, we have compiled a list of all the key terms used in the real estate industry.
This three-part guide of important commercial real estate terms and definitions will make you fluent in the property market.
Terms in the Real Estate Industry for Purchasing Property
If you are planning to purchase or invest in a property, you must know the real estate words that sell in the industry. Using these key terms in the real estate industry will strengthen your foothold in the market.
Here is a list of real estate buzzwords for new buyers and novice investors.
Appraisals
An important real estate term is the appraisal. An appraisal estimates a property’s market value by a lender. Simply, it is the valuation of a property. This process helps validate the agreed-upon purchase price after a comparison of the recent sale of properties (usually of similar configuration) to the actual property’s appraised value.
Equity
Real estate equity is the difference between the outstanding amount on the mortgage and the current market value of the property. The outstanding amount on the mortgage lowers when a homeowner pays the mortgage, thereby, increasing equity in a property.
Buyer’s Agent
A real estate agent who represents their client when they are buying a property is called a buyer’s agent. Such an agent requires an active real estate license to legally represent buyers. A buyer’s agent is responsible for finding the property, advising on offers, obtaining a suitable price, and finding a smooth sale process on the buyer’s behalf.
Closing
Closing is considered the last stage of a real estate agreement. It is a meeting where both buyer and seller fill out the legal contract for the official transfer of property ownership.
Closing Costs
At the time of closing, closing costs are paid by the buyer. In the UAE, a buyer is expected to pay an amount that is 5-7% of the total purchase price for various fees including property registration fees, mortgage registration and processing fees, and real estate agency fee.
Commission
The commission is a fee charged by a real estate agent as part of their offered services. The commission is a percentage-based charge, based on the property’s selling price. In the UAE, the commission fee ranges from 5 to 6% of the property’s total price.
Escrow Account
An escrow account is a financial account funded by the homeowner’s mortgage payments. A lender is responsible to manage an escrow account. Such a lender is usually a bank or an escrow agent chosen to reduce the risk of non-payment.
For Sale By Owner (FSBO)
For sale by owner refers to those properties that are put up for sale by the owner. This process does not involve a real estate agent, thereby, cutting off the commission fee.
Freehold Ownership
The form of ownership in which the buyer has complete property ownership inclusive of the land the structure is built upon is called freehold ownership. Apart from owning the property, the owner can freely lease or sell it. In the UAE, there are designated freehold areas where foreign nationals and expats can buy property.
If you are looking to buy a residential property in such areas, then you should check out the residential villas for sale in the UAE.
Home Insurance
It is also known as hazard insurance or homeowner’s insurance, which is a type of property insurance. It protects homeowners from loss of property due to theft, accidents, and destruction from natural calamities.
Land Lease
When you buy a home, you automatically become the owner of the land on which that property is built. However, a land lease only allows the buyer to own the structure constructed on the land and not the land itself. Therefore, the buyer pays the rent to the landowner for the land.
Leasehold Ownership
Leasehold ownership is one of the important terms in the real estate industry. Such ownership allows owning the structure constructed on the land only, and not the land itself. In such cases, the freehold owner owns the land.
Market Value
Market value is among the important terms in the real estate industry. It is the amount a property would likely be sold for in the market. Since market value is dynamic, there are no simple means of determining it in the real estate industry.
However, the property valuation tool, TruValue™ can get you an instant estimated market value for any property.
Memorandum of Understanding (MOU)
A Memorandum of Understanding (MOU) is an official agreement between the buyer and the seller. It is composed of a real estate agent. It outlines the terms, defined timeline, and conditions of the property purchase.
No Objection Certificate (NOC)
In the case of property, a No Objection Certificate (NOC) affirms that the developer has zero objections to the buyer. In the UAE, such a document is required by developers while selling property. A NOC also attests that all service and utility charges have been accounted for and paid.
Off-plan Property
A real estate which has no structure constructed upon it is known as off-plan property. Since the off-plan property is highly discounted and is sold at good rates, thereby, is beneficial to the buyers.
Return on Investment (ROI)
It is a performance measure for evaluating the probability of gaining a return on investment. ROI is the most used profitability ratio that measures the gain or loss from an investment relative to its initial cost.
Snagging
Snagging is the process of detecting minor flaws that need rectification when a new building is constructed.
Such flaws can vary from minor defects like marks on a wall to major defects like a huge crack on the floor or the wall. These flaws are then communicated to the contractor for rectification.
Title Deed
A legal contract that allows the transfer of a seller’s property ownership to a buyer is called the title deed. A fee is also involved in issuing the title deed, making the buyer the official property holder.
To help sellers and tenants with their trading services and property transactions, Dubai Land launched the Dubai Rest app. The Dubai Rest app allows title deed verification from the comfort of your home.
Terms in the Real Estate Industry for Renting a Property
Now that you are familiar with the real estate key terms for buying property, let’s have a look at the real estate terminology sheet for property renting or living like a tenant.
Tenancy Contract (Lease Contract)
A tenancy or lease contract is a legal agreement that a potential tenant and landlord must sign to allow the tenant to use a specific property for a defined period. The agreement outlines the lease terms and conditions of both parties.
If you are looking for rental property, then you should check out these residential units for rent in the UAE.
Lease
A lease is a legal contract through which properties can be used by a tenant for a specified period, against a periodic payment.
Lease Agent
A leasing agent is a real estate agent who is licensed for renting out real estate and helping tenants to fulfil their needs.
Lessor and Lessee
A lessee is a tenant who rents real estate from a landlord. While the landlord is the lessor who is responsible for granting a lease to the lessee.
Rental Yields
Rental yield is simply the yearly return that a property owner achieves from renting out a property. It is identical to ROI, as explained above.
Rent to Own
Rent to own also referred to as lease purchase is a legal contract that allows buyers to lease a property and buy it before the end of the lease period. The buyer then pays the seller a sum of money that is inclusive of the rental cost as well as a portion of the property’s purchase price, monthly.
Security Deposit
Security deposit is one of the important terms in the real estate industry. It is refundable money given to a lender, landlord, or seller of a property and is set at approximately 5% of the annual property rent.
This amount is intended for the security of the recipient and can be used as payment for damage or loss to the property. The complete repayment of the security deposit is only done if the property maintains its initial state and all the outstanding bills have been paid before the end of the contract.
Terms in the Real Estate Industry for Mortgaging
When acquiring a mortgage or processing it for a client, here is the list of real estate terms that you should be aware of:
Conventional Mortgage
The loan lent by private lenders for a property is called a conventional mortgage. Such private lenders are usually banks that receive a profit by charging interest on the loan amount.
Default
A default is referred to as failure in the timely loan payment.
Down Payment
It is one of the renowned terms in the real estate industry. In the early stages of a property purchase, a payment called a down payment is made which represents a portion of the property’s total value. This amount usually ranges between 5% to 20% of the total cost of the property.
Emirate Interbank Offered Rate (EIBOR)
In the UAE, the interest rate charged by banks is fixed for interbank transactions. This interest rate is termed EIBOR, the abbreviation for Emirates Interbank Offered Rate and is among the real estate key terms.
Fixed-Rate
A fixed-rate mortgage is a fixed interest charged on the loan, for a specific period. The period for a fixed rate is usually up to five years. However, a hike in interest rate is observed once the period expires. This hike can be either a fixed rate above the EIBOR rate or the bank’s rate.
Islamic Mortgage
In the UAE, Islamic mortgage is a renowned mortgage type since it follows Shariah Law. The Shariah Law forbade charging interest on the loan. Banks following Shariah Law earn profit by renting or leasing a property bought on the borrower’s behalf.
Mortgage
A mortgage or mortgage loan is a type of loan used to refinance a property. It can also be used to borrow an amount against the property value. It is a secured loan that is agreed upon between a borrower and a lender, with the borrower agreeing on collateral in case the borrower stops making payment.
Mortgage Broker
A mortgage broker, also known as a financial intermediary, matches a potential lender, usually a bank, with home borrowers to obtain favourable mortgage terms for the borrower. Homeowners rely on an experienced mortgage broker for dealing on their behalf for home loans.
Mortgage Interest
The amount charged on a loan acquired for purchasing a property is called mortgage interest. The mortgage interest can be evaluated as a percentage of the mortgage’s total amount issued by the landowner.
Variable Rate
Contrary to the fixed-rate mortgage, a variable rate has changes in interest rates due to inflation. The variable interest percentage is linked to one, three, or six-month EIBOR.
This concludes our guide on the terms in the real estate industry that sellers, buyers, and real estate agents should be familiar with. By using these real estate key terms, you can converse like a pro real estate investor or buyer in no time.
For more insights into the UAE real estate market, stay tuned to UAE’s top property blog.
